Determinants of Company Going Concern: Empirical Evidence in the Times of Covid-19 in Developing Capital Markets - Zenodo
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International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
Determinants of Company Going Concern: Empirical Evidence in the Times
of Covid-19 in Developing Capital Markets
Beryansyah1, MF. Arrozi2
1,2
Esa Unggul University
ABSTRACT: During the COVID-19 pandemic, various corporate sectors in Indonesia were affected by the pandemic, including
manufacturing companies. Where during the pandemic many companies are threatened with their business continuity. This
observation plan is to understand the influence of managerial ownership, financial distress and leverage on going concern companies
with profitability as a moderating variable. In this study going concern was measured by determining the Scott R formula. The
research methodology for testing and data analysis was using MRA (Moderating Regression Analysis). The population in this
observation is the manufacturing industry listed on the Indonesia Stock Exchange (IDX) in 2020. The sample collection was carried
out using the purposive sampling method with a total sample of 179 companies in 2020. The results of this observation prove that
financial distress has a negative effect on going concern and leverage. Positive impact on going concern. Meanwhile, managerial
ownership has no impact on going concern. Authorized profitability with return on assets is able to strengthen the influence of
financial distress and leverage on going concern. Observational findings in this observation normative accounting theory elevate
plans, skills and then determine how to meet the recognized goals. Normative accounting theory includes decisions about what to
do to fulfill the desires that have been mentioned. The implication of this research is that the implementation of Pecking order theory
explains that industries that get high profits will use relatively small liabilities because the industry will tend to set money in it. The
normative theory here tries to explain the explanations that are usually conveyed to the users of the accounting explanations that
will be presented.
KEYWORDS: Financial Distress, Leverage and Profitability, Managerial Ownership.
INTRODUCTION
The company is a one-way entity where the primary goal is to make a profit (profit oriented). Profit or profit here is a
measure of the effectiveness and efficiency of the company, so profit income is not guaranteed to have a long-term reputation.
Companies can operate for a long time so they can make projects, commitments or activities sustainable. This is based on the
principles of business continuity (going concern) which accommodates a company that can be expected to cancel in the future or
that the company will continue to be determined by time.
In 2020 many corporate sectors were affected due to the Covid Pandemic, in Indonesia the corona virus or pandemic could
be applied by the national government such as the destruction on Saturday 14 March 2020 to go through the century of disaster
emergency in Indonesia. Some companies also put their workers to work from home. All of these actions are intended to make the
Indonesian economy as well as the global economy significantly slow down (Report on Indonesian and World Economic
Development Bappenas, 2020).
Several sectors of Indonesian companies are experiencing the effects of the Covid Pandemic and the economy is slowing
down due to the COVID-19 (adhikara et al., 2022). Covid-19 also has a significant impact on the 2020 financial statements,
especially in the aspect of company income which has decreased due to the purchasing power of citizens and will have an impact
on inflation, and inventory measurement (Mala et al., 2021). The Central Statistics Agency (BPS) transmitted the results of the
impact of the Covid-19 pandemic and carried them out to 34,559 economic actors. The decline in income, due to Covid-19 has an
impact on business productivity.
In the midst of increasingly tight liquidity, the Company must consider Covid-19 in the reserves of a business in interim
financial reporting in the first half of 2020. Companies need to consider the Covid-19 situation in the company's risk management
in maintaining the company's profits to decline in 2020 due to Covid-19 19. Of course, when assessing this situation there is a
financial reporting perspective related to the third paragraph of PSAK 8. The spread of Covid-19 in Indonesia is the result of events
492 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
Available at: ijcsrr.org
Page No.-492-504International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
that occurred after the 2019 reporting period and no event could affect the presentation of the 2019 financial statements. However,
if Covid-19 19 that significantly threatens business continuity going forward due to the significant impact caused by Covid-19,
permanent companies will consider the company's valuation (going concern) when compiling the 2019 annual financial statements
(PSAK 8 paragraph 14).
The results of previous research on going concern have been carried out by Fernando (2018). It can be developed with
additional dependent variables, namely managerial ownership, and leverage, and does not include unearned revenue, working capital
turnover, cash flow of capital, and additional liabilities as independent variables. Including profitability as a moderating variable.
The difference in measuring going concern using the Scott Model, where previous research used the Zmijewski Model.
This study aims to find out, firstly, by choosing Good Corporate Governance (Managerial Ownership) as the dependent
variable, the researcher wants to find out whether there is a match between managerial theory and the events of this pandemic. Then
Financial Distress to measure whether the impact of this covid pandemic makes the company experience an indication of bankruptcy,
then Leverage is used to measure the amount of debt affecting the company's sustainability risk during the pandemic, then earnings
power as a moderating variable to calculate Return On Assets to see how effective the company's assets are in generating profit
during a pandemic.
The contribution of this research is to improve the company's performance by always paying attention to the policies and
strategies adopted in determining the sustainability of the company's business. By paying attention to the debt owned by the
company, it reduces the risk of the company experiencing a bad financial condition which causes the company to fail to pay its debts
and cannot continue its business. The application of pecking order theory explains that companies that generate high profits, consume
relatively little debt, tend to use the company's internal funds for operational costs.
THEORY AND HYPOTHESES DEVELOPMENT
Normative Accounting Theory
Normative theory tries to explain the information that must be conveyed to users of accounting information and how that information
will be presented (Kabir, 2011). Normative theory is generated through a semi-exploratory process without testing the accounting
theory presented, which may or may not explain general accounting practice. On the other hand, empirical theory focuses on the
importance of empirical studies to verify whether the accounting theory presented in the accounting theory literature can explain the
dominant accounting practice (Budiarto, 1999). Accounting theory is an important part of practice. Normative accounting theory is
also claimed to be a prescriptive theory, which tries to answer the question of what should be. Here, accounting is believed to be a
regulatory practice that must be followed regardless of whether it is applied or practiced now or not. Normative theory seeks to be
able to justify what should be actualized, for example, there is a statement that explains the financial statements based on the asset
measurement method. Normative theory only interprets hypotheses that are put into practice without any hypothesis testing.
Bankruptcy Theory
Bankruptcy theory assumes that economic distress is a company's failure to lose income that is unable to cover expenses, namely
the company's profit margin in capital costs is not in line with the expected cash flow. Financial distress means it is difficult to
collect funds, both in the form of cash and working capital. As asset and liability management, it plays a very important role in
avoiding financial difficulties. Companies in countries experiencing financial difficulties will soon go bankrupt because financial
difficulties have become ill and then lead to rapid bankruptcy of those who are sick and bankrupt.
The Relationship of Managerial Ownership, Financial Distress and Leverage to Going Concern
Going Concern or business continuity is the root of the principle that presents the company's financial statements. The definition of
going concern is the ability of a company or entity to survive or operate in the long term where the sustainability of the company's
operations can be affected by financial or non-financial conditions such as poor management, decreased ability of the company to
pay debts, government policies, pandemics, inflation, etc.
Relationship of Managerial Ownership to Going Concern
Management ownership is a condition where a manager holds several shares issued in a company. In terms of stock management,
the position of managers and shareholders will be the same to increase company efficiency and maximize company value. In
addition, in ownership, the manager directly benefits from the decisions he makes because he becomes the owner of the company
493 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
Available at: ijcsrr.org
Page No.-492-504International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
directly by owning a number of shares in the company. According to (Januarti, 2009) it is concluded that managerial does not have
a significant influence on going concern audit acceptance. Meanwhile, the study (Linoputri, 2010) concluded that going concern
audit opinion had a negative effect on managerial ownership.
Relationship of Financial Distress to Going Concern
The soundness of a company is in a good financial position, the auditor does not issue a going concern opinion. According to
(Andari, Ni Made Meliani, 2017) management expects the company to face bankruptcy in the future, and its survival is also a
consideration. The financial situation of a company, that is, the company's financial position for a period of time, generates negative
net income for several years and eventually goes bankrupt, and the company's operating cash flow is no longer sufficient to take
corrective action to avoid bankruptcy.
Leverage Relationship to Going Concern
Companies with low levels of funding leverage tend to go bankrupt and remain vulnerable to corporate audit opinions. The
company's high leverage ratio is an indication of adverse conditions because most of the funds used come from debt. The fast
leverage ratio raises doubts on the auditor's side of the business continuity of a company to provide the auditor's opinion on the
business continuity. A high leverage ratio also makes it harder for businesses to get loans because lenders tend to display loans to
companies with declining leverage ratios.
The Relationship of Profitability to the Effect of Managerial Ownership with Going Concernn
Managerial ownership is share ownership by the management of the company. (Christiawan et al., 2007) argues that managerial
ownership is a condition where managers own shares in the company, meaning that managers are also shareholders in the company.
Managerial ownership also affects the profitability of the company, as we believe it can affect the company's operations and
ultimately its effectiveness in achieving its objectives. The relationship between financial performance and profitability will be
strengthened by the involvement of management. Because more executives will have an impact on the company, namely managers
tend to be more active in the interests of shareholders. This study is in accordance with research conducted by (Jensen & Meckling,
2019), showing that management ownership aligns the interests of management with those of shareholders, so that managers feel
the benefits of making decisions and the disadvantages of bad decisions.
Profitability Relationship to the Effect of Financial Distress with Going Concern
According to (Andre & Taqwa, 2014) financial distress can be explained by two extremes: shortterm liquidity problems that cannot
be resolved. Short-term financial difficulties are usually shortlived, but they can develop into serious problems. Where indicators of
financial distress can be collected from an analysis of cash flow, analysis of the company's strategy, and reports from the company's
finances.
Research (Hapsari, 2014) shows that profitability has a negative influence on financial distress. Efficient wealth management makes
it possible to cover all the costs of running a business and has a significant profit yield. A study from (Srikalimah, 2017), states
against similar results that profitability has a negative impact on financial difficulties.
The Relationship of Profitability to the Effect of Leverage with Going Concern
The leverage ratio is a measure of the long-term ability that is used to assess the company from fulfilling obligations (Andre &
Taqwa, 2014). A high leverage ratio can lead to high financial risk when risks arise.
Profitability is the company's ability to make profits, namely high profits, the faster the tax liability and high leverage, the lower the
company's profitability. The existence of a significant influence displays the existing leverage from the main factors that influence
the profitability of the company.
Hypothesis Development
Based on the literature review and the results of previous studies, the hypotheses are formulated as follows:
H1: Managerial ownership, financial distress, and leverage affect going concern with profitability as a moderating variable.
H2: Managerial Ownership has a positive effect on Going Concern
H3: Financial Distress has a negative effect on Going Concern
H4: Leverage has a negative effect on Going Concern
H5: Profitability strengthens the positive effect of Managerial Ownership on Going Concern
494 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
Available at: ijcsrr.org
Page No.-492-504International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
H6: Profitability weakens the negative effect of Financial Distress on Going Concern H7: Profitability strengthens
the positive influence of Leverage on Going Concern
RESEARCH METHODS
Research design
The research design uses causality hypothesis testing, namely to test the effect between two variables. The approach used
is the quantitative method, namely the use of numbers as variable indicators. According to (Efferin, 2018) the quantitative approach
is an approach that uses procedures, hypotheses, field trips, data analysis and data conclusions to measure aspects, computations,
methods and certainty of numerical data.
Variable Operational Definition
Going Concern in this study is the dependent variable, according to (Indonesian Institute of Certified Public Accountants,
2011) interpreting going concern as the ability of a business to maintain business continuity in the right period of time. More than 1
year. The year from the date of the audited financial statements. In this study, the method used in predicting going concern uses the
Scott model (Scott, 1981) that interest payments are generated from earnings before interest and corporate taxes and changes in
equity in this case are dividend payments.
Managerial ownership is a condition where managers take part in the company's capital structure or use other terms, the
manager has a dual role as manager and shareholder in the company. In accounting theory, the motivation of managers will choose
the amount of profit management in the company. Motivation that is not in sync will form the amount of profit management that is
out of sync
According to Andari, et al., (2017), financial distress (financial distress) begins when the company is unable to meet
payments and the company cannot complete its obligations based on cash flow projections.
According to Petrus et al., (2018) Leverage ratio is the company's ability to meet short-term and long-term financial
obligations and or the company's good size in paying off debt.
ROA is a method of calculating the financial performance of a company by comparing the net profit generated by the
company with the company's total assets. ROA reflects how much a company earns from the financial resources it invests. The
reason the author uses ROA to assess the financial performance of a company is that the ROA ratio is very important in financial
analysis which is a comprehensive method. ROA ratio analysis is a method of analysis that is commonly used to assess the level of
effectiveness of the company's operations as a whole. According to (Priyanto, 2013). Understanding ROA is a type of profitability
that is able to assess the company's ability in terms of obtaining profits based on the assets used.
RESULTS AND DISCUSSION
Research result
Descriptive Statistics
The statistical descriptive results show the tendency of individual taxpayers as shown in table 4.2
Table 4.2 Descriptive Statistics
495 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
Available at: ijcsrr.org
Page No.-492-504International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
The table above shows the composition of the shareholding owned by Managerial at 6.2%. The higher the managerial
ownership value, the higher the influence of management interests. With a mean value of 6.41 on financial distress, it shows that
the company does not experience bankruptcy potential. The company's high leverage ratio indicates a loss, because most of the
money the company develops comes from debt. Profitability shows that the average value of the sample study has an ROA of 27.2%,
which means that the company gets the main performance from its operational activities. Based on the statistical results, descriptive
going concern has a mean value of 45 billion and is positive. This explains that the company's playing value as the research sample
has a positive EBIT so that it is a going concern.
Normality test
The use of the normality test is used to process data from research results using the Kolmogorov-Smirnov test method, as
explained in the previous chapter that the normality test can be used to see the residual model in research with a normally distributed
Table 4.3. Normality
One-Sample Kolmogorov-Smirnov Test
Unstandardized Residual
N 68
Mean 0E-7
Normal Parametersa,b
Std. Deviation 2.04051907
Absolute .083
Most Extreme Differences Positive .083
Negative -.083
Kolmogorov-Smirnov Z .688
Asymp. Sig. (2-tailed) .731
a. Test distribution is Normal.
b. Calculated from data.
The Kolmogorov-Smirnov test above shows residual data which has a normal distribution. The results of this normality test explain
that the Kolmogorov-Smirnov value is significant at 0.731 > 0.05, which is in accordance with the assumption of normality.
Data Multicollinearity Test
The multicollinearity test is to see the results of the tests contained in the regression model found, namely the independent
variables of the regression model by analyzing at the VIF level (Variant Inflation Factors). Then the VIF value ofInternational Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
Table 4.4 explains that the model used gives all independent variables to the value of VIF 0.05 then
there will be no auto-correlation and if the probability value isInternational Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
Hypothesis Testing before Moderation
Hypothesis testing is done either simultaneously or partially. The calculation results are in table 4.6 below.
Table 4.6. Coefficient of Determination Test Table (R2)
Model Summaryb
Model R R Square Durbin-Watson
Adjusted R Std. Error of the
Square Estimate
1 .485a .235 .160 2.02915 1.434
a. Predictors: (Constant), LVPF, KM, FD, KMPF, FDPF, LV
b. Dependent Variable: LNGC
Based on regression testing, the Adjusted R2 value is 0.160, indicating that managerial ownership, financial distress, leverage, and
profitability have an influence on going concern by 16% and the remaining 84% is influenced by other variables contained in this
study.
Table 4.7. Uji F Table (Simultan)
ANOVAa
Model Sum of Squares df Mean Square F Sig.
77.326 6 12.888 3.130 .010b
Regression
251.165 61 4.117
Residual
1 Total 328.490 67
a. Dependent Variable: LNGC
b. Predictors: (Constant), LVPF, KM, FD, KMPF, FDPF, LV
Based on the regression test in table 4.6, the F-count is 3,130 with a significance (0.010 < 0.05). The results of the Simultaneous
Effect Test of F show that the p-value is lower than the significance value (0.05) so that the conclusion from Ha1 is accepted, namely
that there is managerial ownership, financial distress, leverage, and profitability on going concern simultaneously.
Table 4.8. T Test Results (Partial)
a. Dependent Variable: GC
498 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
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ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
Based on the results contained in table 4.7 above, it can be made an equation of multiple regression, namely:
GC = 18,195 + 2,873 KM + 0,579 FD + 2,670 LV - 45,084 KM*PF - -0,467 FD*PF
- 15,772 LV*PF + 2.02915
DISCUSSION
Effect of Managerial Ownership, Financial Distress, Leverage and Profitability on Going Concern
Based on the test of the F-count regression model of 2.796 significance (0.000International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
The Effect of Profitability weakens the positive influence of Managerial Ownership on Going Concern
In accounting theory, the motivation of managers determines the amount of profit earned by the company. Different motives
bring different benefits. Stock managers in a company are involved in setting policies and making decisions about accounting
practices that apply to the companies they manage. While going concern or the survival of the company is always associated with
the ability of management to hold the company. If the economic situation of a company is uncertain, then a pandemic situation like
this requires management to be able to make decisions so that the company can continue to run its business.
Profitability can moderate the influence of managerial ownership on business continuity. Where this is caused by the
existence of stock management in the company who cannot make decisions where it will affect performance in achieving the goal
of making a profit. Managerial ownership equalizes the interests of management with shareholders, so that managers can feel directly
from the benefits that result from decisions. This study is in accordance with research conducted by (Jensen & Meckling, 2019),
showing that management ownership aligns the interests of management with those of shareholders, so that managers feel the
benefits of making decisions and the disadvantages of bad decisions.
The Effect of profitability weakens the negative influence of Financial Distress on Going Concern
Financial distress is a company's financial statements in a condition where the situation is not good. Therefore, usually the
profits obtained by the company can no longer be used in submitting loans, funding operations and completing responsibilities with
existing profits.
Profitability can moderate the effect of financial distress on the company's business continuity. This is due to an indication
of bankruptcy by a company, one of which is a factor that is influenced by the high and low profits of a company, the company's
profit, the indication of bankruptcy experienced by the company is considered low, making the company continue to be able to
continue its business. The results of research from (Srikalimah, 2017), state against similar results that profitability has a negative
impact on financial difficulties. If the company gets a high profit, then the profit can be used by the company, so that financial
difficulties will not occur.
The Effect of Profitability strengthens the positive influence of Leverage on Going Concern
Pecking order theory explains that companies that generate high profits will use relatively little debt because companies
will tend to use their internal funds. Profitability is the ability possessed by the company to make a profit. If the profit earned is
large, the amount of tax liability paid is also higher, if the leverage is higher, the profitability of the business will weaken. A
significant influence explains the leverage of a primary factor and affects business profitability.
Profitability can moderate the effect of leverage on the company's business continuity. This is caused by companies that
are able to form high profits that will affect the high level of business success in fulfilling financial responsibilities both in the short
and long term, the output of this study shows how businesses are able to manage debt to earn profits and also to pay off their debts.
According to research (Kusumaningrum, 2019) companies with a high rate of return on an investment tend to use a fairly low level
of debt. Where the rate of return allows the company to fund most of the funding needs obtained internally.
RESEARCH FINDINGS
This research has some interesting findings, so that the company has a lot of debt, so the company is also at high risk of not being
able to continue its business. This is in accordance with the pecking order theory, which explains that a business can generate high
profits, will carry out relatively little debt so that businesses that have low debt will tend to be able to continue their business. So in
this study it proves that normative accounting theory takes goals, attitudes and determines methods in achieving existing goals.
Normative accounting theory provides resolutions regarding what must be done to achieve goals. Normative accounting theory in
going concern as a qualitative characteristic of financial statements which states that the company's ability to survive or be able to
operate in the long term where the company's business continuity is influenced by financial conditions, one of which is the decline
in the company's ability to pay debts.
Furthermore, the results of the study found that Adjusted R2 from before moderation had a value of 0.097 and increased to
0.160 when moderation occurred. So, comprehensively the profitability moderating variable will strengthen the company to be a
going concern.
500 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
Available at: ijcsrr.org
Page No.-492-504International Journal of Current Science Research and Review
ISSN: 2581-8341
Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
IJCSRR @ 2022 www.ijcsrr.org
CONCLUSION
Management ownership, financial difficulties and leverage simultaneously affect business continuity. Ownership does not have a
positive effect in determining the sustainability of the company's management. Financial difficulties have a negative impact on the
sustainability of the company's business. A business's poor financial position during a pandemic can indicate that a business cannot
continue as a going concern. Leverage has a positive impact in determining the sustainability of a company's business. Profitability
weakens the impact of management ownership on the company's business continuity. Profitability reduces the negative impact of
financial difficulties on the company's business continuity. Profitability increases the positive effect of leverage on the company's
business continuity.
RECOMMENDATION
Recommendations for this research: it is recommended and expected to use study objects that focus on other industries and increase
the study time span more than the current research period, namely 5 years (period 2016 – 2021), add independent variables that
affect going concern, for example audit quality and change moderation apart from profitability, so that it can provide a broader
explanation regarding indications of going concern in a company, using a proxy approach to corporate governance measurement
methods such as using data from IICG and IICD in the form of scoring or the ASEAN Corporate Governance Scored (ACGS) in
order to be able to assess the implementation of GCG comprehensively. Comprehensive and accurate, as well as using corporate
governance measurements with proxies such as audit quality and managerial ownership.
Then it is recommended to test the going concern variable using other proxies such as the Altman Z-Score, and to test the
financial distress variable using the latest Altman Z-Score formula, in 2014.
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Volume 05 Issue 02 February 2022
DOI: 10.47191/ijcsrr/V5-i2-22, Impact Factor: 5.825
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Cite this Article: Beryansyah, MF. Arrozi (2022). Determinants of Company Going Concern: Empirical Evidence in the Times
of Covid-19 in Developing Capital Markets. International Journal of Current Science Research and Review, 5(2), 492-504
504 *Corresponding Author: MF. Arrozi Volume 05 Issue 02 February 2022
Available at: ijcsrr.org
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